Sturgis Bancorp Reports Earnings for Third Quarter 2016

Sturgis Bancorp is the holding company for Sturgis Bank & Trust Company (Bank), and its subsidiaries Oakleaf Financial Services, Inc. and Oak Mortgage, LLC. Sturgis Bancorp provides a full array of trust, commercial and consumer banking services from 12 banking centers in Sturgis, Bangor, Bronson, Centreville, Climax, Colon, South Haven, Three Rivers and White Pigeon, Mich. Oakleaf Financial Services offers a complete range of investment and financial advisory services. Oak Mortgage offers residential mortgages in all markets of the Bank.

Key Highlights for the third quarter of 2016:

Net income for the third quarter of 2016 was $670,000, compared to $534,000 for the third quarter of 2015.

Net income for the first nine months of 2016 increased to $2.0 million from $1.6 million in the first nine months of 2015. The $331,000 increase was realized despite $700,000 of one-time tax exempt income during 2015 from bank-owned life insurance.

The Bank maintained strong capital ratios, exceeding "well-capitalized" requirements, with Tier 1 leverage capital at 8.31%. Total capital at September 30, 2016 was 14.11% of risk-weighted assets. The Bank's risk-weighted assets were $249.3 million at September 30, 2016.

Total assets increased 12.5% from December 31, 2015 to $407.6 million, including $9.1 million growth in loans.

Allowance for loan losses was 1.25% of gross loans, unchanged from December 31, 2015.

Three months ended September 30, 2016 vs. three months ended September 30, 2015 - Net income for the three months ended September 30, 2016 was $670,000, or $0.32 per share, compared to net income of $534,000, or $0.26 per share, for the three months ended September 30, 2015. The tax equivalent net interest margin increased to 3.83% in the three months ended September 30, 2016 from 3.66% in 2015.

Net interest income increased by $402,000 in the three months ended September 30, 2016, primarily due to growth in securities and loans.

Noninterest income was $1.4 million in the third quarters of 2016 and 2015. Commission income decreased to $267,000, as Oakleaf Financial Services transitions to Raymond James from LPL.

Noninterest expense was $3.6 million in the third quarter of 2016, compared to $3.5 million in 2015. The Bank expensed $169,000 consultant fees to negotiate for lower data processing expenses over a new six-year contract.

The Company provided $102,000 to the allowance for loan losses in the third quarter of 2016, compared to ($31,000) in the same quarter of 2015. Net charge-offs were $118,000 in 2016, compared to $15,000 in 2015.

Nine months ended September 30, 2016 vs. nine months ended September 30, 2015 - Net income for the nine months ended September 30, 2016 was $2.0 million, or $0.95 per share, compared to net income of $1.6 million, or $0.79 per share, for the nine months ended September 30, 2015. The tax equivalent net interest margin increased to 3.79% in the first nine months of 2016 from 3.58% in the first nine months of 2015.

Net interest income increased by $1.3 million in the first nine months of 2016, primarily due to net earning assets acquired from West Michigan Savings Bank and additional growth in securities and loans.

Noninterest income was $3.9 million in the first nine months of 2016, compared to $4.7 million in the first half of 2015. The Bank received $700,000 of death benefit in excess of recorded cash value from bank-owned life insurance in the first nine months of 2015.

Noninterest expense was $10.4 million in the first nine months of 2016, compared to $10.7 million in 2015. Most of the decrease was due to the 2015 acquisition of West Michigan Savings Bank, with most acquisition expenses recorded in the second quarter of 2015.

The Company provided $284,000 to the allowance for loan losses in the first nine months of 2016, compared to ($4,000) in the nine months of 2015. Net charge-offs were $222,000 in 2016, compared to $138,000 in 2015.

Total assets increased to $407.6 million at September 30, 2016 from $368.6 million at December 31, 2015, primarily in cash equivalents, securities and loans. Cash equivalents increased $16.1 million from December 31, 2015, due to temporary municipal deposit fluctuations. Securities increased $14.6 million from December 31, 2015, primarily held-to-maturity municipal securities. Loans increased $9.1 million from December 31, 2015. Most of the increase in loans was in Commercial loans.

Noninterest-bearing deposits increased to $68.7 million at September 30, 2016 from $65.0 million at December 31, 2015. Average noninterest-bearing deposits were $69.9 million for the three months ended September 30, 2016 and $66.0 million for the first nine months of 2016. Interest-bearing deposits also increased to $247.9 million at September 30, 2016 from $219.0 million at December 31, 2015. Average interest-bearing deposits were $232.8 million for the three months ended September 30, 2016 and $230.2 million for the first nine months of 2016. Much of the growth in interest-bearing deposits is temporary municipal deposits, which fluctuate seasonally.

Total equity was $33.8 million at September 30, 2016, compared to $32.6 million at December 31, 2015. Book value per share increased to $16.21 ($12.68 tangible) at September 30, 2016 from $15.70 ($12.08 tangible) at December 31, 2015. Average equity was $33.6 million for the three months ended September 30, 2016 and $33.1 million for the first nine months of 2016.

This release contains statements that constitute forward-looking statements. These statements appear in several places in this release and include statements regarding intent, belief, outlook, objectives, efforts, estimates or expectations of Bancorp, primarily with respect to future events and the future financial performance of the Bancorp. Any such forward-looking statements are not guarantees of future events or performance and involve risks and uncertainties, and actual results may differ materially from those in the forward-looking statement. Factors that could cause a difference between an ultimate actual outcome and a preceding forward-looking statement include, but are not limited to, changes in interest rates and interest rate relationships; demand for products and services; the degree of competition by traditional and non-traditional competitors; changes in banking laws and regulations; changes in tax laws; changes in prices, levies, and assessments; the impact of technological advances; government and regulatory policy changes; the outcome of any pending and future litigation and contingencies; trends in consumer behavior and ability to repay loans; and changes of the world, national and local economies. Bancorp undertakes no obligation to update, amend or clarify forward-looking statements as a result of new information, future events, or otherwise. The numbers presented herein are unaudited.